CMC Master Fund Opposes Heska NOL Protective Amendment

PALO ALTO, Calif., April 28 /PRNewswire/ -- The CMC Master Fund, LP today announced it opposes the "NOL Protective Amendment" proposed by Heska Corporation in its proxy statement.  The CMC Master Fund, LP owns approximately 7.8 million shares of Heska common stock representing an approximately 15 percent position.  

The CMC Master Fund believes that the proposed Net Operating Loss (NOL) Protective Amendment is not in the best interest of Heska's shareholders as it restricts the ability of large shareholders to purchase more shares of the company and imposes restrictions on investors who wish to acquire five percent or more of Heska's outstanding shares.  The CMC Master Fund opposes the proposed restrictions for the following reasons:

• May Depress Share Price:  Because of the relatively illiquid trading of Heska common stock, such restrictions could depress the price of the stock to the detriment of shareholders by removing larger purchases from the market.  
• Prevents Offers for the Whole Company:  The NOL Protective Amendment could deter a potential acquirer who might wish to purchase all Heska shares at a premium over the market price. In addition, the NOL Protective Amendment contains no exceptions to permit a tender for all of the outstanding shares of the Company.
• Reduces Management Accountability:  Management accountability may be reduced by the NOL Protective Amendment's effect on deterring offers for the whole company. Furthermore, it prevents investors from accumulating larger positions in order to improve management's responsiveness to their concerns.
• Needlessly Long; No Minimum NOL Limit: If approved by the shareholders, the NOL Protective Amendment may remain in place until 2026, even though the Company's NOLs begin expiring later this year. In addition, continued maintenance of the NOL Protective Amendment is not tied to any minimum level of Company NOLs. These reasons suggest that the NOL Protective Amendment may remain in place long after any potential benefits are outweighed by its adverse effects.
• Fails to Adequately Warn of Adverse Effects of "Yes" Votes: Section 202(b) of the Delaware General Corporation Law provides that no restrictions on the transfer of securities of a corporation shall be binding with respect to securities issued prior to the adoption of the restriction unless the holders of the securities voted in favor of the restriction. The Company's proxy fails to adequately warn shareholders that a "Yes" vote in favor of the NOL Protective Amendment (and the transfer restrictions contained therein) would have the effect of waiving any claim such shareholder might otherwise have against those transfer restrictions applying to its shares under Section 202(b) of the Delaware General Corporation Law.
• Mischaracterizes Prior Transfers as Reasons for the NOL Protective Amendment: In Heska's proxy statement, the Company indicates that it is proposing the NOL Protective Amendment to safeguard $163 million of pre-tax federal NOLs accumulated over years of unprofitable operation because the Company "experienced a shift in our ownership for purposes of IRC Section 382 of slightly over 15% based on certain assumptions. . ." (page 14 of Heska's Proxy Statement).  The shares held by the CMC Master Fund were recently transferred from an affiliate into the CMC Master Fund, but that transfer should not be a shift in ownership for purposes of IRC Section 382 because the CMC Master Fund and its affiliate have substantially identical beneficial owners.  Through counsel, the CMC Master Fund has informed Heska management that the transfer should not constitute a shift in ownership for purposes of IRC Section 382.

As a sizeable owner of Heska, the CMC Master Fund would welcome strong profits from the company which might utilize its accumulated NOLs.  Heska reported a pretax loss in 2008 and pretax income of $3.7 million in 2009, making it uncertain whether the Company can utilize any significant portion of the $163 million of NOLs before those NOLs expire.  As a result, the CMC Master Fund encourages Heska to consider withdrawing the NOL Protective Amendment at this time.

About the CMC Master Fund

The CMC Master Fund and its affiliates are long – term investors in Heska, having first invested in 1988 when Heska was a private company.  The CMC Master Fund does not believe that the proposed NOL Protective Amendment is in the best interests of Heska's shareholders, and will vote its shares against the proposed amendment.

SOURCE CMC Master Fund, LP